Since January 1, 2008, China has introduced the general
anti-avoidance rules ("GAAR") as a part
of the new enterprise income tax regime. In 2009, the State
Administration of Taxation ("SAT")
promulgated Guoshuifa [2009] No.2 ("Circular
2") covering a variety of tax avoidance arrangements
and directing the local tax authorities to use the "substance
over form" principle to tackle them. Later in the same year,
the SAT released the Guoshuihan [2009] No. 601 and Guoshuihan
[2009] No. 698 ("Circular 698") to
address beneficiary ownership and indirect equity transfer
respectively. Despite the wide application of the GAAR, the
underlying procedural mechanism has been missing for so long. On
July 3, 2014, the SAT released draft guidance on the GAAR
("Draft Guidance") for public comments.
The Draft Guidance is seeking to prescribe a practical clarity for
identification and investigation of tax avoidance. The public
comment period closed on August 1, 2014.
